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Scranton City Council's decision to allow the Scranton Parking Authority to default amounts to a cutting off of the city's nose to spite its face, because the city now will have more difficulty obtaining loans, some observers say.

But the SPA default was inevitable at some point this year, so the council majority chose to cut bait now by taking a stand against such "bailouts" that the financially distressed city simply cannot afford, council Solicitor Boyd Hughes said.

"This is a train wreck that was going to happen from last year," Mr. Hughes said of the SPA default. "If it didn't happen on June 1, (when a bond payment that was due was not paid) then it was going to happen in September, (when another SPA bond payment is due) and if not in September, then in December," when yet a third SPA bond payment will be due.

However, some observers say the council decision may amount to a 'Pyrrhic victory,' meaning it comes at such a high cost that it really is no victory at all. The default swiftly resulted in M&T Bank on Friday yanking its offer to provide the financing required to keep city government afloat this year, administration officials said. M&T was the only bank willing to deal with the city after other banks had become wary, officials said.

"It is true you could argue this train wreck was about to happen, but why hasten that train wreck," said Satyajit Ghosh, a University of Scranton economist since 1986. "This is perhaps not the time or battle to pick. I don't see any net benefit in the council's vote."

Christopher Borick, a Throop native who is an associate professor of political science and director of Muhlenberg College's Institute of Public Opinion, said, "You may have a legitimate argument in the long term that the parking authority is inherently flawed, but that doesn't mean you take a position that jeopardizes the financial health of the city as a whole. To jeopardize the financial health of the city on a vote they might claim to be principled, in the long term, may do more damage than good. There's a point where you have to stand back as a legislator, that you may have to make a decision that isn't necessarily perfect, or might not even represent your favorite position, but for the overall good, sometimes you have to take your hit."

The dispute had been brewing since September, when the parking authority notified council that the agency expected to have a $1.6 million budget deficit in 2012 and would need the council to pick up the tab by June 1.

Council, which had already had a contentious relationship with SPA, chafed at the request and in October asked for various financial data. The response by SPA was described by Mr. Hughes as a "Mickey Mouse" budget that was "personally insulting" to him. "They thumbed their nose at us," Mr. Hughes said.

It all came to a head in recent weeks when Mayor Chris Doherty's administration first asked council to pay $1.4 million in SPA debt that would be due June 1. Council balked and demanded SPA and city officials first show up at a public caucus to explain the situation.

At that public meeting Thursday, council unleashed a litany of grievances against an authority that council views as profligate, mismanaged and not transparent.

The council took issue with SPA Executive Director Robert Scopelliti's annual salary of $83,200. The council previously had eliminated two SPA positions that the authority reinstated, Councilman Jack Loscombe said. Councilman Pat Rogan noted that SPA board members are appointed by the mayor and the council has no say over SPA, yet is obligated to back its debt. Mr. Rogan questioned the authority's spending of $600,000 on parking-garage facade improvements, as well as a parking fee of $3.70 for the first hour in authority garages. Council members asked if having SPA solicitor Paul Kelly also serve as the solicitor for the city administration was a conflict of interest. "No, sir. Not at all," Mr. Kelly replied.

Worse, the more detailed budget information supplied by SPA for the caucus did not add up, Mr. Hughes said.

While the administration now was seeking a transfer of $940,000 to cover SPA debt, SPA's budget figures showed an estimated $2.4 million deficit for this year, Mr. Hughes said. Along with the amount needed on Friday, the SPA will need another $959,000 in September to make a bond payment, and another $813,000 in December, Mr. Hughes said.

Council majority members Mr. Loscombe, Mr. Rogan and Councilman Frank Joyce, who favor selling or leasing garages to raise revenue, voted against covering SPA debt. Council President Janet Evans was absent.

Councilman Bob McGoff, the lone minority member who voted to cover the debt, agreed with the majority's concerns regarding SPA operations and finances, but said allowing a default would be disastrous for the city. One of the SPA bond insurers, National Public Finance Guarantee Corp., in a letter to council Thursday acknowledged there is room for SPA improvement, but warned that default could harm the city's ability to borrow.

"While National supports the City Council's call for greater financial transparency by the SPA, the city's obligations are unconditional and as such, cannot properly be conditioned upon the SPA meeting city council's demands," wrote Kenneth Epstein of NPFGC.

Likening the council to fiscal watchdogs, Mr. Hughes said, "Somebody's got to look at this thing realistically. If SPA didn't go into default on June 1, how are they going to come up with $1 million due in September? What's the plan? What makes you think the city is going to have the money? You think the financial condition of city will be better? The council could have been a bunch of bobbleheads and said, 'Oh yeah, here's $1.4 million.'"

Meanwhile, borrowing and refinancing are key planks of the council's 2012 budget, but administration officials said banks now likely won't provide loans or would demand steep premiums due to the default. The council has not formally proposed alternatives or acted on the mayor's recent proposed recovery plan that calls for steep tax hikes. Informally, the council has said it supports a commuter tax and increased payments in lieu of taxes from the city's nonprofits.

When asked last week how a $16 million budget deficit can be plugged without unfunded debt, Mr. Loscombe said he wasn't sure, but mentioned pursuing contributions from nonprofits.

The immediate consequence of council's decision means payless paydays and health care lapses for employees if the city runs out of cash. That seems inevitable at some point given that now there are no willing lenders to provide financing to cover an expected $16 million budget deficit, administration officials said.

And city administrators noted the city still will be on the hook to pay parking authority debt because it has been guaranteed by the city. The bond insurer could now take over parking authority facilities. The council majority doesn't see that as a bad thing.

"Now, the (bond) insurance company can come in and replace them (SPA officials) or maybe privatize one or two of these garages, and sell them and reduce the debt, because it's not going to happen voluntarily," Mr. Hughes said.

Contact the writer: jlockwood@timesshamrock.com

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